El Nino Rains Won’t Refill Brazil’s Key Hydropower Dams

The Jaguari dam in Jacarei, Brazil is one of the main reservoirs supplying Sao Paulo. Brazil's most important dams are at historic lows as the country endures its worst drought in eight decades. Photographer: Victor Moriyama/Getty Images

Aug. 1 (Bloomberg) -- The drenching El Nino rains that may
replenish Brazil’s hydropower reservoirs will probably miss the
nation’s most important dams, now at historic lows as the
country endures its worst drought in eight decades.

The weather phenomena that’s causing floods in Brazil’s
south won’t travel far enough north to help refill reservoirs in
Sao Paulo, Minas Gerais, Rio de Janeiro and Espirito Santo
states, where 70 percent of Brazil’s hydropower capacity is
located, said weather forecasters Climatempo and Somar
Meteorologia.

“There is no hope that El Nino will fill the southeastern
water reservoirs,” said Thaize Baroni, a meteorologist at Sao
Paulo-based Somar. “It won’t change conditions for this year
and it can make it worse, as the region may have even dryer
weather in the next few months.”

The extended drought means Brazil’s government will
probably be forced to continue using costly thermoelectric
plants to help avoid blackouts. According to Jose Goldemberg, a
professor at the University of Sao Paulo’s Institute of Energy
and Environment, a third of the electricity consumed in Brazil
currently is produced by thermoelectric plants.

“This government’s team decided to exchange the physical
blackout for financial blackout,” said Goldemberg. “Thermal
power plants are not made to be used all the time.”

Water Rationing

The Sao Paulo water utility Sabesp is also struggling
through the drought. It was warned this week by federal
prosecutors to start rationing or risk having its biggest
reservoir run out of drinking water within 100 days.

Cia. de Saneamento Basico do Estado de Sao Paulo, the
company’s formal name, has no plans to ration water. It’s
relying instead on rain forecasts and conservation policies.
“Measures taken by Sabesp will guarantee supply until March
2015, when the rainy season will be at its peak,” the company’s
press office said by e-mail.

Sabesp is relying on the INPE, the government-controlled
weather forecaster, which, according to the company, expects the
volume of precipitation in the next rainy season to be equal to
or greater than average of previous years, because of El Nino.

The National Institute for Space Research, as the
forecaster is formally known, doesn’t have predictions for the
last three months of the year, according to researcher Paulo
Nobre.

Sabesp didn’t reply to inquiries about how it’s using data
from INPE.

Prices Doubling

Industrial customers signing contracts for energy to be
delivered starting in 2015 paid 390 reais ($172) a megawatt-hour
in June, according to Thymos Energia. That’s more than double
the 165 reais for fixed contracts bought in January. The price
will increase to 450 reais in September, when the rainy season
starts, the Sao Paulo-based energy consulting company estimates.

“Industries in Brazil that are highly dependent on energy
are becoming less competitive,” said Mathias Becker, president
of the renewable energy company Renova Energia SA.

Tractebel Energia SA and other utilities have been forced
to buy energy at record spot prices when output at their dams
fell short of supply commitments. The average spot price was 581
reais a megawatt-hour this week, more than triple the 153-real
price a year ago.

Hydroelectric dams in Brazil’s Southeast/Midwest region are
at an average of 34 percent of total capacity, according to the
Electric System National Operator, known as ONS. That’s down
from 36 percent in June. A year ago they were above 60 percent.

ONS estimates that the dams may slide to 18.5 percent in
November. “Below that, hydroelectric generation may be hampered
in some dams,” said Joao Carlos Mello, president of Thymos
Energia.